Get Rich With: Good Old-Fashioned Trust

This nest in our front-yard tree has raised five generations of robins. Note this year’s remodel – some shredded strips of one of my credit card statements.

It was the fall of 1992, and the teenage version of Mr. Money Mustache was getting his first peek at a whole new world. The World of the Wealthy.

I was on a date with one of my first-ever girlfriends. She was way too attractive for me, which already induced nervousness. We had been dating for a while, and I guess things were going well because she had decided to introduce me to her Dad, who lived in another town. I was ready for terror and interrogation.

As we drove up the leafy winding road to his private, custom built house, I felt I was entering another league entirely. In my hometown, people didn’t live like this. We walked through the front door and there was her father – a friendly and casual 40-something dude, looking stylish in his faded jeans and sporting a bushy Tom-Selleck-style black Mustache.

The vibe was completely different from any girl’s father I had previously met. Most of the Dads of my town were strict, conventional, and even a bit irrational in setting rules for their daughters. But this man treated both his daughter and her new boyfriend as adults. He was funny and bright. He told interesting stories about the successful photography company he was running. After a bit of chit-chat he gave us a quick run-down of where things were in the house: TV room, hot tub, keys to the fancy car if we needed it. Then he took off to attend a meeting with one of his business partners, leaving us with the whole place to ourselves, for most of the night.

“Wow”, I remember thinking. “This old guy has entrusted me with his daughter, his house full of cool stuff, and his car, after meeting me for all of fifteen minutes. I’ve never seen anything like it!”. A feeling of fancy adult responsibility washed over me and I made a point of not abusing his trust. We even washed all his dishes that night.

Over the decades that have followed, I’ve noticed that pattern in several more places. Successful people are usually more trusting. Less successful members of the middle class are often obsessed with locking up their houses and cars, suspecting that the world is out to get them, and avoiding risk.

The pattern also seems to apply at the corporate level. The first company I joined after moving to the US had a culture of micromanagement. The employee handbook specified that no personal emails or websites were to cross into the company’s network, ever. The CEO was notorious for second-guessing coding decisions of individual software engineers. Vacation time was closely guarded and merit-based-pay was almost nonexistent. I jumped ship from that job to a better one after only 10 months. The company went out of business shortly after I quit.

The next company was a model of employee trust and fair treatment. I was given a generous budget to buy whatever I needed to get my job done. I could book my own business travel without approval. Working time was not monitored and vacations were self-scheduled and self-reported. I worked much harder at this place, and at the time it was one of the most valuable and profitable companies in the world. (In recent years the employee experience has gone downhill but it is still a profitable and huge company).

Even on the bigger scale of entire countries, it turns out that there is a strong correlation between trust and wealth, and in fact trust precedes and causes wealth in countries as they develop. In an interesting passage of The Rational Optimist, the author noted a 2008 Princeton study on this effect. It found that 65% of Norwegians answered a question indicating that “most people can be trusted”, while only 5% in Peru felt the same way.

Once you frame the issue as “trust”, you can see the effects all over a prosperous economy. People are willing to build houses and factories on their land, because they trust it will not be confiscated by government or revolution. Companies are able to grow quickly, because they can get huge amounts of funding from investors who trust that their ownership rights will be preserved. The entire concept of money exists only because of a massive network of trust that exists in modern rich society – a shared reassurance that the money will continue to be worth something tomorrow (despite the perpetual insistence of gold bugs worldwide). Without all of this trust, we would spend much more of our time worrying and devising safety systems and much less time actually getting things done.

The effect of trust is amazing when you think about its effect on your daily life.

A few weeks ago, I decided to finally re-paint the peeling exterior of my house. It’s a big place that would have cost at least $3000 to paint if I hired a contractor. Instead, I told a friend who runs a small painting company of my plans. He mentioned that he gets a 15% pro discount at the paint department of Home Depot, plus he had a one-time 20% off coupon valid on a specific day.

We went to the store together and bought my paint along with some supplies each of us needed – on his credit card. The store was running a 12 months-no-interest promotion, which further sweetened the 35%-off deal we were getting. My portion came to just under $400. We agreed that I would pay him back before the 12 month period was up. Then we walked out of the store with an enormously valuable haul of products, bought only on a signature, to be paid back with no interest charges almost a year in the future.

Then we further complicated the picture with additional trust. He lent me his thousand-dollar paint spraying machine, a selection of huge ladders, other painting equipment, and spent a full day helping me get started. No payment was made – I just repaid the favor by helping him an equal amount on his own projects. I also ended up paying back the full cost of the paint through further barter arrangements.

In the end, I completed the $3000 paint job at an out-of-pocket cost of $0, with only the “cost” of spending a few spring days getting some exercise in my own back yard. Climbing up, climbing down, moving ladders, spraying, rolling, cleaning, and learning. All made possible by great amounts of trust!

So how does all of this apply to building a Money Mustache? I personally use the knowledge to shoot down the phrase “You can never be too careful.” Because I feel that yes, you sure as hell CAN be too careful. Just as with the recent article on Risk and Safety, there is always a cost to every bit of caution you apply. Mistrust adds extra cost to every transaction in your life, whereas trust makes those transactions glide nicely. And transactions, whether they are dinner dates, bike rides, work contracts or friendships, are of course the source of much of life’s wealth.

Make a point of surprising your own friends, children, and employees by giving them more autonomy and responsibility than you would normally do. Watch them flourish and grow and make your life richer. Give out your house keys to close friends or lend them your car if they need it.

You can stop safely short of being a gullible fool, of course. You won’t be responding to spam emails or signing up for multilevel marketing schemes or timeshare properties. The beauty of practicing trust is that you also develop the skill of knowing when to dish it out. But if you’re not already one of these wealthy trusting people, you should be pushing your boundaries at least a bit.

Occasionally, you will probably get burned, just as I did with The Big Mistake. But that’s no reason to stop trusting! Mistakes are just high-end lessons, and they should only serve you to refine your Get Rich Through Trust machine.

I’ve made much more through trust than I could ever possibly lose through past or future mistakes. When you comb your own personal history for evidence on the power of trust, and combine it with the scientific evidence that it works at every scale from small to large, you’ll find that it’s the only rational choice.

I’m sure he was being literal and consequently was referring to whether you cleaned the specific dinnerware the two of you used that night.
The correct format for sexual innuendo is “[verb] the/her [adjective] [noun]”.
No adjective, no innuendo.

I’ve reflected on this issue of trust at micro and macro level, but never thought about it as one of trust – it’s an interesting way to view it.

At home, we have a 14 month old and reflecting on how we raise him to be independent, trust is something that raises itself from teaching him how to look after himself in the future (trusting him to do chores) to more significant life choices.

At work, my husband’s work environment moved from trusting to micromanaging – the shift in attitude of the employees was marked. The most common phrase was “two can play at that game” – leading to people putting in only the required hours and pushing the rules and regulations in their favour to the limit. Previously they had worked extra hours without complaint and gone beyond the requirements of the job.

In my study of international relations, I’ve looked at different types of governments, societies etc. I remember quite clearly one day leaving my introductory course and seeing the world differently – I cross the road when the walking light is green because of the rules we operate under, but there is also the trust that everyone is operating under those same beliefs etc. A simple example, but one that pervades everything including your example of building businesses and a prospering economy.

Trust is indeed a foundation to all of these aspects of life. I try very hard to live as you suggest, to trust in people (I have to try because it goes against my upbringing somewhat, and I have been hurt as you have) – it sits well in my belief system. You can gain so much more than you lose.

From $3K to $0. Now that’s impressive. And another great post from your life’s experience. Thank you again.

My story of being around wealth I wasn’t used to: As a young new Christian in North Carolina back in the 70’s, the group I worshipped with did so in their lovely homes. We even had a monthly visiting apostle.

We’d go to restaurants I never knew existed. I was in the military then and they also gave me a car.

As an aside, I’m glad you read The Rational Optimist. Rarely do I recommend a book and someone actually reads it. You had mentioned a book about Stoicism and I learned a lot from that.

Just signed over my daughter’s old car (actually my car that she has been driving) to my mechanic in exchange for future labor on my other cars. Deal only involved a handshake. Neither of us thought twice about “legalizing” the deal with paperwork.

By any measure other than asking me (because I won’t admit it) I’m well off, but I’m extremely skeptical of people and there was a giant disconnect with me and this post.

There’s a big difference between trusting someone with something to lose versus trusting the average person that lives hand to mouth. The general populace have no need for integrity and thus do not practice it. If they have a job, the job they do have probably requires no character. Just look at a site like Consumerist which is filled with stories of workers representing companies in a horrible way because there is nothing at stake for them.

Since I run my own business, I don’t have that luxury and I will only trust people that are in a similar situation. I would make a handshake agreement with my mechanic as well, but wouldn’t trust someone at a JiffyLube as far as I could throw my car.

To be honest, this tells me more about yourself and your view of the world than the hypothetical trustworthiness of a Jiffy Lube employee. If you somehow lost all the possessions you had, would you suddenly become untrustworthy? Are you only trustworthy because you have something to lose?

Sure, I’d trust a Jiffy Lube employee. I trusted our neighbor (a waitress, living off her wages) to feed our pets with access to our house just a few days after meeting her. I’ve stayed at people’s houses in Tijuana that were incredibly poor. I’ve been all over the world, meeting great friends and trusting them. I can’t even remember a single instance where I’ve been burned.

“To be honest, this tells me more about yourself and your view of the world than the hypothetical trustworthiness of a Jiffy Lube employee.”

And I’m fine with that because I only described my viewpoint and did not suggest others follow along. I started out by saying I’m skeptical of others, it’s not like you’re pointing out something I didn’t already point out myself.

To answer your question though, yes people that lose their money are untrustworthy. Many, many people in these comments are making “trust” into an ethical dilemma, but trust is just as much about someone’s judgment as it is their intentions. Accruing debt is almost a game in the US. Many of these debtors go broke through their own carelessness and lack of judgment. Employers run credit checks as part of a background check for this very (obvious) reason. Of course there are exceptions, but they are just that: exceptions, special cases.

The point of my comments here is that I almost entirely disagree with the MMM post. I know many well off people and they all tend to be miserly and highly suspicious. I’m not sure I know a single carefree, trusting individual with money. I’m not saying that’s the way everyone should be, I’m just saying that’s my perspective of what I see and what I know first hand.

Just a reminder, this post was titled “Get Rich With: Good Old-Fashioned Trust” not “Make a Better World With: Trust.”

What I love about the Mustachian community here is that there are people at all different financial levels. The common thread is cutting expenses, living frugally, and saving/investing whatever you can, at any level. Making more money is a quicker way to get to retirement if you already have strong frugality muscles, but the key is changing your perspective and spending habits in the first place.

Perhaps it is statistically more likely for a business owner to have a reputation that he/she wants to protect, but there are many ethical people in low paying jobs who do the right thing simply because they believe it’s the right thing to do. For every consumerist horror story, I can provide an example of an employee being paid minimum wage being completely abused by an entitled brat and quietly taking it because they have loftier goals in mind. I’ve worked those jobs. I’ve been that person.

If anything, I wouldn’t trust the Jiffy Lube guy simply because he works for a company that does not operate in the realm of trust or good faith. Once he was off the clock? Much more likely.

As a lawyer, my days are filled with stories of these types of situations gone horribly wrong – I never get to hear about all the times things worked out just fine.

That having been said, there are a *lot* of times when these “handshake” deals go awry. Even setting aside the risk that the other person will intentionally try to screw you, think about the problem of peoples’ memories…

This summer we are going to spend 4 weeks in Washington DC. We are exchanging houses with a familiy we met on HomeExchange.com. A lot of people ask me if I am not scared to leave my home and car in the hands of strangers, but because of my trust, I save a lot of money during our vacation, and will have a great experience living like ‘a real American family’ for a month, something we otherwise could not afford.
Same with Marktplaats (dutch version of Craigslist), a lot of the transactions are based on trust. Never had a bad experience there, and always do my best to be worthy of the trust of others. That makes it a good deal for everyone.

Um, you would be a fool if you didn’t use the experiences of other to inform your trust decisions. It’s about giving people the benefit of the doubt instead of setting your default setting to “suspicion”, when you don’t have enough information to make an informed decision. Doesn’t mean you have to entrust them with your life savings.

When someone has already proved that they are a lying, scheming sociopath, obviously it would be your error to trust them.

No one is saying you should trust blindly and in the face of overwhelmingly contrary evidence. Just that people shouldn’t be indicted for crimes they haven’t committed.

Yes, that’s my point. You should used informed judgment when dealing with other people, particularly when it comes to money.

I would say that sense of “due diligence” is closer to “Trust is something that’s earned” than it is to “Trust everyone until they give you a reason not to.”

Again, I said in another comment, a lot of these comments have devolved into a some mushy, touchy, feely thing. Having healthy finances is not primarily about being liked or having a lot of deep and meaningful relationships: it’s about having healthy finances.

Not only does trust help you get rich, it builds great relationships. As I look back over my life, the people that I remember fondly are the ones who treated me like a responsible adult. A lot of the people I didn’t like were the ones who didn’t trust me.

Great article – it is remarkable how powerful trust is. Also when someone breaks our trust it is important to give them a chance to redeem themselves and although you may be more guarded in your next transaction with this person, down the road your trust will be stronger. My thought is forgive but never forget and ensure you learn something from each “transaction” you have in life – nothing is more important than the relationships we build and those relationships had better be built on trust.

Society couldn’t function if people didn’t have a basic level of trust. It’s why we have contract law, but also why we institute rules about “reasonable” behaviour. You’ll find that judges will often issue their judgments based on what people could reasonably expect each other to do.
I’m not sure what you meant to imply by this, though:
“It found that 65% of Norwegians answered a question indicating that “most people can be trusted”, while only 5% in Peru felt the same way.”
You don’t know which way causality runs here. Did the trust cause the stable society, or did the stable society – where everyone has a social safety net and a stable government to back them up – cause the trust?

Necroing here but this site is well-read and this has been the theme of my night, since I gave someone a ride for $85 via Craigslist, but my father thinks I’m too trusting.

Specifically on the point about causality, it can be a two-way street, it took some trust to establish the stable government and to trust that the social safety net would not be abused. But MMM went on to mention government seizure risk and what that does to people’s tendency to want to own easily seized assets. So I think there’s a feedback loop between trust and stability on the macro level.

I also think that I do not trust the general populace of the US to advocate the same widespread safety nets here in the states (as opposed to a tightly knit Northern European country), and there’s been substantial evidence of abuse.

And on a personal level, I tend to think — small thing, always trust. Larger thing, be more wary. And MMM has been burned big. But paranoia in small cases is definitely going to cause you strife.

The other general point I wanted to highlight is that MMM’s examples did involve trust established over time – the painter friend, and even the girlfriend — her father wasn’t trusting MMM necessarily, but his daughter’s judgment and presence. But certainly a paranoid person would have treated that situation differently, and alienated people.

I’m living in Brazil, and I can see this concept of “trust = wealth” (applied inversely as “less trust = less wealth”) on a daily basis. Culturally, most of Brazil is very manipulative and tricky (and thus equally paranoid and not trusting). Don’t get me wrong, I love many things about Brazil (food, friendliness, beauty, etc.). But I can see on a daily basis how people constantly lie and are forced to sacrifice in order to avoid trusting anyone they don’t know incredibly well.

I’m a very trusting and honest person, so it drives me totally fucking crazy sometimes. Sure I’ve been burned, but those instances just pointed out where I need to refine my bullshit radar. The solution is not to trust EVERYONE less.

True, I’ve only really lived in the south-western part of the country, (where most of the population is concentrated). But I’ve been living here for nearly 5 years, and have had contact with a wide swath of individuals across different demographics and from different states.

The sad thing is that nearly all of the Brazilians who I know (that have traveled outside their country) agree with me 100% on the “manipulative and tricky” statement :-( I really, really love it here, don’t get me wrong. There are some incredibly freeing and wonderful things about the people (example: friendliest people EVER). Heck, I married a Brazilian! But you definitely can’t implicitly trust strangers, acquaintances, casual friends, or even family. Even when talking to your best friends, you have to consider their perspective and potential interests in any given subject.

I can vouch for Heath’s comments – I was born in Brazil. Trusting people here is very difficult, specially in highly urban areas. It is cultural: there is the ‘malandro’, which is a streetwise, cheating and slick person, and ‘Gerson’s Law’, which states “one should always take advantage of a situation”. You never know when someone is scamming you – even your own family. Sad, but that’s how it works.

Indeed, it is better to go through the world trusting that majority people are good and on occasion getting screwed, then always being on alert and mistrusting (which still may lead to getting screwed anyway)…

It’s not just stability in society that leads to trust, but (perceived) equality. Norwegian society is equitable – the gap between rich and poor is small. Such societies tend to have less crime as there are fewer unfulfilled material needs, and less resentment between people at each end of the wealth spectrum due to jealousy and fear.

Most people are more likely to trust someone like themselves. If you put a rich person in a poor neighbourhood, or a foreign one, they would generally be less trusting. Maybe a small degree of scepticism is warranted, but the main problem is our perception of risk is usually vastly overdone.

Rather than perceiving risk as binary (full trust/no trust), I try establish a safe default level of trust for new people, and escalate it as quickly as possible. This relates to MMM’s often-referenced optimism, I think – being trusting conveys an image of openness and confidence, the latter of which at least is key to success. I would argue the former helps too.

I think this is like with everything else it seems to be difficult to find the balance of risk. Some people keep their money in the matress and others go all in on facebook….the same thing for physical risk were some people dont dare to bike to the supermarket where as others spen their free time jumping out of planes…

Good article –
It has been proven that stable business environments where the rule of law is enforced (and it is trusted to be enforced) are generally prosperous. This is why we are working so hard to drive out corruption and stabilize the rule of law in Africa – becuase stable business environments lead to prosperity, for this exact reason. People can trust that they will still own their property, business, and inventory, as the law states they will.

I always think, “the world is a reflection of me” – so if I see people and the world as un-trustworthy maybe I need to examine my own thoughts and actions. Am I being honest and trustworthy? Am I fearful? Do I trust myself? Self confidence has a lot to do with trust, both of self and others…

This is an excellent view! I’ve always held true that we cannot escape our own perceptions/biases, and that “the world” is filtered entirely through them before it gets to our conscious minds. Thus whatever you’re seeing in the world around you, is largely a mirror of yourself. That’s an incredible insight that I’d never really had before, and it’s blowing my mind…

I don’t know man. If you look at rural society, the level of trust is much higher than any wealthy country. It’s just when people have to struggle to feed their family that the trust goes way down. I don’t think the trust/wealth relationship is that easy to understand.

Funny, my company just passed out iPads and is about to launch something called Navigator . As an outside salesperson, I’m trying hard to remain neutral about this until it’s implemented.
Mr. MMM, you’ve hit the nail on the head today. It feels like the company doesn’t trust us to make good decisions, so they are going to start doing it for us remotely. Ugh. Anyone have any experience with this system?

Specifically on the iPad issue.. My company just passed out some iPads for our external sales people. Not to monitor them, but to lighten up their laptop and paper documents they have to carry with them. We now can push digital documents to their iPads and the cloud so they can access either via an App or Safari. I built those apps, so pretty proud. Plus they can stay in touch with their family through Facetime. Most of our Sales ppl love having a toy on the road.

LOL, it’s so true at the corp level…
A huge reason I am still working at this company is because they go out of their way to make sure they take care of their employees. My boss is the most trusting and caring kind so I make damn sure I deliver good work to make her look good.

Choosing to trust someone is a gift we give ourselves, by not having to worry about what might go wrong, how they might screw us, etc. It doesn’t always work out, but when it does it can benefit the giver as much as the receiver.

There was an interesting PBS special a few years ago about the diamond industry in New York, which is dominated by a close-knit group of Jews. Their entire business is built on trust and provides proof that trust and reputation is stronger and more valuable than any contract could be.

I’ve had experiences like that in the post and through them learned a previously unknown way of looking at the world, and have been a better man since.

When I was 25 I was new to a city and didn’t have a car. I got a crappy low-wage job with one totally unexpected benefit – my boss would often give me the keys to his Mercedes for the day or weekend! It seemed totally insane but I really appreciated his open-handed attitude and resolved to be that person when I got a car. I made a point of lending my car to friends who opted to remain carless, to help them remain that way yet have wheels when they needed them. It hasn’t made me rich in money, but I do have a great community of friends who I trust deeply, so I call it a successful attitude.

I wonder if Home Depot trusts that the pros they give the 15% pro discount to won’t abuse it by buying paint for their non-pro friends. Though I’m sure HD takes this into consideration. If they actually trusted the pros they might be able to offer a bigger discount. Just a thought.

I don’t see that as abuse – HD offers an incentive so the pro’s keep coming back to them instead of shopping around. It’s not a one-way thing – HD gets something out of it, and they still made a profit on that paint.
Heidi

That’s an interesting point. I imagine that Heidi is right that HD realizes that pro painters are likely to share their discounts. (you can get the discount right at the register just by asking for it and providing the account’s registered phone number.) And they definitely make a profit even after the discount. From what the manager told me, pro customers are worth fighting for, because we buy $1000 of stuff in the time a DIY customer buys $100, and we don’t need much hand-holding from staff.

In case it makes me seem more trustworthy, I should note that I would also qualify for a pro account – all you need to show is that you have a business that buys at least SOME paint. It’s just more convenient to share his account.

Whatever works. I’m pretty pragmatic about these things. If I was planning on making a big purchase and a friend could hook me up with a 15% discount I’d gladly take it. I’d rather have that money in my bank account rather than in Home Depot’s.

My parents allowed us (3 boys) to make our own choices without banning anything (other than illegal drugs inside of home residence), we had no curfews… While both of my parents smoke and drink coffee, none of us kids even tried cigarettes, drugs or coffee (we all of course had our share of drinks :).

My wife comes from a Mormon family – where she was subjected to all kinds of limitations and mistrust. She was not trusted, so at one point she decided that since she is not going to be believed, she may as well live up to the mistrust she was getting.

This is obviously a non-scientific example, but count me in trust-first group.

On the flip-side – I manage team of 15-20 people and for the longest time, my biggest failures were caused by my inability to trust my employees. I lost many good employees because of it, spent thousands of my own hours watching over everything like a crazy person, and did not give a chance to talented people to develop within the company. After a few years, I realized just how dumb I was and I made changes to limit my “control-freakishness” and let people work, make mistakes and learn from them. Since then, I have enjoyed my job more, worked less and profits tripled (as I finally had time to focus on important things).

I worked for a small company for a few years, and although they were small they were more strict than any other company I’ve been with. Despite making more money there than I ever had/have, I ended up leaving and have never regretted the decision.

Now I basically own my own business and work 100% on commission. I can do what I want and it’s great to feel free.

Trusting your employees to do the job you hired them to do is imperative for all corporations. If you don’t trust them to do their job properly then you shouldn’t have hired them in the first place.

I am very trusting, but I also try to have very clear boundaries in my head about what I am willing to lose, and what I’m not. I have been hit recently with several moments of “trusting” people who I shouldn’t have. There was no malice – just people’s long-term character defects coming out. The only one I am troubled by will be a tenant I won’t renew a lease with. (Just hope he doesn’t destroy the property when he finds out.)
Heidi

There are a lot of good points here. But I feel like one is missing – trusting yourself! Trust that if you quit a toxic or miserable job that you will find one that better suits you and pays more. Trust that you are making the right financial decisions such as managing your own money rather than having an “expert” do it. Trust that you can learn how to Do It Yourself (DIY) and do a respectable job. Trust that your financial sacrifices you make today will pay off for the future. Trust yourself!

Even when it doesn’t relate directly to money, I think it’s easier to be rich when you trust people because you are a happier person. Living a paranoid life is energy consuming and time wasting and you’re miserable. You don’t have time to be good at anything else.
Think back to that first girlfriend’s dad- if he did not choose to trust you, what other choices did he have? Not go to his meeting? Try and kick the two of you out of his house? I doubt either of those were actually options for him.
Trusting those around us frees us up to do what we need to do.

“Your father did business with Hyman Roth, your father respected Hyman Roth, but your father never trusted Hyman Roth.”

— Frank Pentangeli to Michael Corleone.

I think MMM is blurring the fine line between cooperation and trust. It’s possible to cooperate with someone while maintaining a healthy dose of skepticism toward that person. The key is to not put that other person in a position where screwing you over becomes wildly lucrative — more lucrative than the riches derived from a lifetime of cooperation.

I think trust is closely linked to personal reputation – you know, how “big” the person is on the inside. If you have a strong reputation as a trustworthy person who follows through, then people will be more reluctant to let you down.

Our local judo instructor is a HUGE man both in size and reputation. I have seen him deal with misbehaving kids by putting a hand on their shoulder, look at the ground and tell them how much they disappointed him. The tears always follow because they let “Big Al” down.

I too would be hard on myself if I let him down. These people lift you to their level, not the other way around.

I agree wholeheartedly with your views on trust, and have experienced its power in the workplace.

I trusted a man I’d dated for a couple of years and married him. He has now destroyed me financially (I’d paid my house off before marrying him in my mid-30’s, he automatically got half of its value when we split, and there are never-ending legal battles and alimony etc etc… I got half his student loans, lucky me) and tried to destroy me emotionally.

What happened instead was that all the people in my world (and some I barely knew) stepped up, wrapped around me, and taught me an awesome lesson: I would rather be generous and trusting, even unfortunately taken advantage of than be mistrustful and isolated.

I may not be able to retire early, but I’ve learned the power of community and have been inspired by people who trusted me enough to help me out, to become myself even more generous despite having less to give.

Alternative theory: Wealthy people often have a higher risk-tolerance, which is how they managed to leverage their work into wealth in the first place. Hence, it may not be trust as much as the ability/temperament to tolerate risk.

(Also if you’re wealthy you can more easily tolerate risk than someone who isn’t. This leads to a wealthy-gets-wealthier effect.)

Have you read Drive by Daniel Pink? Trusting people within corporations is something that he talks about there and, as ever, you are right on the money. (No one’s ever said that to a personal finance blogger before. Haha.) I like the idea that you should trust people more. It’s interesting that America has the easiest credit of every other country – which totally hurt us during the mortgage crisis but has helped us basically at every other time. The Norwegians after the terrifying attack/massacre on those kids did not beef up their security because they STILL trusted the vast majority of people.

A very interesting article. It got me thinking as to *why* trusting behaviour may tend to make you wealthier. I think game theory scenarios like the prisoners dilemma that have been used to analyse human interaction provide an answer.

The scenario goes something like this (there are many different examples but they all share the same properties) You and another person have worked and earned some money, say £10000. Both of you has the option of choosing to share the cash 50/50 or steal it all for yourself. if you both choose to share you both get £5000 if you both steal you get £0 and if one steals and one shares the person who steals gets all the £10000 the other gets nothing.

You work out that assuming a there is an even chance of the other person chosing ether share or steal the optimum strategy is to steal. As a 50/50 chance of getting £10000 is better than a 50/50 chance of getting £5000. Now you also realise the other person has worked out the optimum strategy is to steal, but if you both steal both get £0, now to get the best reward your job is to convince the other person to share, the sub-optimum strategy so you can choose steal and take the money, essentially you have to lie convincingly, cheat and steal.

So how does this explain how trust is the best strategy? If you have only one of these deals with this person ever and are never going to come across this person again then deceit is better. but if you are going to do multiple deals then the other person is going to remember this and not deal with you or choose the steal option next time, therefore you get nothing in future interactions. This is where trusting someone to share and sharing yourself is better because if you have more than one of this particular deal which you won’t get if you steal then you will get an equal or greater reward in the future (two deals and 2x£5000 = £10000, you’re even on stealing the once, any more and you’re better off sharing). If you get burned you can choose steal in future as the other person is not trustworthy. Obviously, in this instance I’ve chosen the values so more than one deal is better but hopefully you get the idea that unless stealing has a much, much greater reward, sharing is the best way to go. Of course most human interactions are more complicated than that this scenario but it gives the bare essence of why logically the assumption of trust is better in human interactions.

Trust lowers transaction costs while at the same time increasing potential loss resulting from deception. Low transaction costs matter (a lot) more when the same people engage in many repeated transactions. Deception matters more if they only engage in a few transactions. The whole world of trade is organized around that concept (you may get “trust” of buying on credit in a small shop as a known customer, but you won’t ever get that “trust” in a huge city supermarket, for a very good reason).

In this article MMM is preaching his wishful thinking by ignoring the necessary context. Or maybe he believes the “small shop” situation is more prevalent, based on his experience; he should have made it more explicit, but then the writing would probably be less entertaining. People tend to prefer simple, definitive, enthusiastic models over complicated, iffy and boring ones… even when they’re wrong.

Thanks for the useful addition in that first paragraph, Ray. I agree with all of it, but there was a subtler point I wanted to get across in this article: from a personal development perspective, it is usually profitable to increase your trust. Many people are putting a cap on their own potential in a rich country by being too fearful of negative consequences of trusting others.

Regarding the second paragraph, I may need to add a new article just for you. It would be about the high cost people tend to impose on themselves by accidentally coming off as a dick in their interpersonal relationships. You’ve made several comments around my site in the last few weeks, and most of them have had a bit of a knife twist thrown in there just for good measure. This doesn’t help your cause, and I would argue that purely positive and helpful comments would be much more influential.

If we takes MMM’s story as the truth (as I’m 100% inclined to do, especially considering the Whole Point Of The Article), then her father did not fail in the slightest. He was right to trust, which was proven by the complete lack of any negative elements to the story. By trusting, he created a situation in which MMM felt compelled to respect his trust. Win-win.

Unless you consider an late-teens couple being alone to just inherently be a bad thing. In which case, I guess we’re just going to have to disagree.

And the hidden subtext of my example is that there’s a certain skill to judging character and trustworthiness. This Rich Dad guy was an expert at it, and he could see through me – recognizing I was a shy, nerdy and honest teen, and that his daughter was safe. If I was an axe-murderer, he would have picked that up too and found an excuse to stick around the house that night and get me out of the place in a jiffy.

Many wealthy people tend to have this skill of knowing who to trust, and all of us can at least get better at developing it through practice.

I agree a certain level of trust is healthy, but let’s not say there is a skill to knowing who to trust, and that members of a certain income category have this skill.

My grandfather is by many definitions a successful man. Raised a son, founded 2 corporations, expanded one to Singapore, helped fund another corporation, and entered semi retirement when he was 50. (Only semi retirement because he’s the kind of person that can’t stop working)

He is also very trusting by nature. But that doesn’t mean he hasn’t trusted people that didn’t abuse his trust. If you ask him, he barely remembers or mentions people like that. It’s his perception of the world that matters here. His skill at identifying who might cheat or exploit his trusting nature is probably comparable to the general population.

It’s just that, well… most people DON’T cheat or exploit. So of course if you trust people, you already have this low chance of your trust being taken advantage of, and if you DON’T trust people… well, you won’t be put into a situation where individuals could exploit you, and your negative thoughts about others continue to perpetuate the idea of ‘there are lots of people that will take advantage of me’. The media is also another good reinforcer of that line of thinking.

I’ve got to say, this comment + the original post’s lumping of “daughter” in together with “stuff” has exceeded my Screaming Heebie-Jeebies level.

Joy: Unless the girl’s dad believed MMM was a rapist, he didn’t fail his daughter.

MMM: I *know* you don’t mean things this way, but saying “He trusted me with his daughter” in the same sentence as “He trusted me with his material possessions” is just the creepiest thing ever. I mean, you probably *don’t* know any people whose parents treated them as possessions, which is why you don’t think this phrasing is a big deal, but…your experience in life isn’t the only one.

Okay, time for the brain-bleach so I can get to the *point* of this column. :-)

I did read his reply. It was ‘no comment’, which I interpreted as ‘I don’t have enough information to make a judgement call’.

Also, if you’re assuming that two older teenagers are going to refrain from taboo activities because their parents refuse to leave them at home alone, then I’m pretty sure you are underestimating the ingenuity and creativity of teenagers. Teenagers behaving like ‘perfect angels’ is a nice dream, but the health of a young adult is much better protected by teaching them to respect themselves and approach their decisions with adult reasoning of consequences. A difficult task, to be sure, but one that is unerringly worthy :-)

Oh, I forgot the most important and relevant part of that tip:
After teaching them self-respect and how to carefully consider consequences, you have to TRUST them to make healthy decisions. Without that part, it’s worthless (and comes across to your kid as you trying to control them… a sure fire path to rebellion).

I will say, very late!, that I think you mistake where the line of young adult and “older teenager” can be. My siblings and I were trusted with the run of our parents’ house for quite a few weekends at ages 15, 16, 17 through 17, 18, 19 and we spent our time watching movies and ordering pizza. Yes we had BFs/GFs over, but not for anything too risque.

As a side note, I never thought of this as “trust” at all. We were so busy with school/activities that a weekend in without a huge party or lots of events was a blessed relief, at least to my inner slacker. :) But yeah, apparently my parents were rare folk, every adult I’ve ever shared that with has had their mind boggled, saying, “wow, your parents really trusted you”.

I didn’t read that as a confirmation or a denial, simply an “I’m not going to get too far into the details of my way old personal life” on this blog. I mean, if he’d responded with “No, we washed the actual dishes and then we watched a G-rated movie while sitting on the opposite ends of the couch and wearing our triple strength chastity belts”, that is still more information than I feel anyone is really obliged to give out!

However, I would say in MMM’s example the person the dad was REALLY trusting was his daughter: he trusted that she had good judgement and was not going to bring home a guy who would trash the house, attack her, or otherwise behave in a non-trustworthy manner.

Exactly. And he might even be perfectly OK with the idea that his teenage daughter might be having sex. Sometimes I think most parents must suffer a complete memory wipe on the birth of their first child, ’cause they clearly don’t remember what they were like at that age.

As with the Prisoner’s Dilemma examples, a lot of this seems less about inherent trustworthiness, and more about being able to take a longer-term view.

Yeah, I didn’t grow up in Abstinence Land – we were aware in my town/country that teenagers have the same natural feelings and bodily functions that older adults have. So the trust was at a higher level – are you going to handle things responsibly or not? For the most part in my high school, things went very well – even for the sexy crowd (of which I unfortunately was not a part :-)

Thank you for the thought-provoking post! I had never thought of trust in this context before. I’m always hesitant to trust people, and it may be this caution has been too much. This post has inspired me to let go of the reins a bit.

Trust = confidence. When you trust someone, you are sending positive vibe. The person you trust indeed feels appreciated. That’s the fundamental catalyst for success in your personal and profession life.

Trust is something of a weird thing in my life. I have a really hard time trusting some my coworkers at times, but at least good reason, my job is generally fixing their mistakes :)

However, outside of work (basically travelling) I am exceedingly trusting to others. I’ve gotten random rides from more than a few people that didn’t speak a common language with me, asking random strangers on the street to help me communicate with doctors and spending more than a few nights in peoples homes I never knew their name.

I also trust motorists not to hit me while I’m on my bike cycling across countries :)

WHHOOOOOHOOOOOO I HAVE NOW READ EVERY ARTICLE EVER POSTED BY MR. MONEY MUSTACHE!!!!!

(and almost all the comments)

That was a week well-spent, I must say. I am sure my BQ* has gone up by several points in the last few days.

Re: trust, I think of it as the lubricating oil that cuts down the burning friction in relations between people. When people don’t trust each other they have t waste all kinds of time and effort checking up and safeguarding and verifying and planning for contingencies and worrying. This is friction and it directly cuts down on people’s productivity and creativity. Trust eliminates the need for much of this overhead and keeps the gears meshing smoothly, which makes everyone better off.

Problem is it’s a self-enforcing thing it seems, and you need to have a decent level of baseline trust in a society before trust becomes adaptive behavior–otherwise their won’t be enough trustworthy people around to deal with and you’ll get burned all the time. I think people need to experience trust before they can learn to trust themselves, which is why controlling and untrusting parents can be so corrosive to the success of their children.

> which is why controlling and untrusting parents can be so corrosive to the success of their children

Very nicely put!

It looks like this article didn’t get nearly as much disagreement as I thought it would.. I that’s a great sign for all of us (and it means the doors are open for many fun Inter-Mustachian business arrangements in the future!)

And congratulations on your outrageous accomplishment of reading this whole blog! I am amazed as always – how will you now add a Mustache to your avatar??

I too believe in dealing with people based on trust. It is never good to be second-guessing anything someone says or does right off the bat. This philosophy gets you burned every now and again, but you also gain a whole lot more rich connections.

The issue of trust reminds me a little bit of the Benjamin Franklin quote: “glass, china and reputation are easily cracked and never well mended”

I’m not sure how I feel about this. On one side, if you’re already wealthy, it’s okay to be trustful, because you can rebound from being burned without too much of a problem. On the other, if you are just merely working your way up to riches, being trustful can negatively impact your life in the snow-ball stages, to the point of adding years to your retirement date.

For example, I’m currently selling a $1,500 bike on Craigslist (which I bought for $700 used). If I simply trust the potential buyer–whom I do not know personally–to try out the bike around the block, he might ride off indefinitely, and I’ll have no way to see him or the bike again, losing my money–which at this stage in my non-working life is more than 50% of my savings. Instead, I could simply compromise, trusting the person to ride the bike–if he or she agrees to give me some form of collateral, in case if things go awry; like an ID or pre-payment for the bike.

Of course, it depends on the object or situation we’re talking about; if the object isn’t worth much to me, like a pencil or some other trinket, I would trust the person, because I don’t have much to lose, and much more to gain; if I’m trusting the person with my car or house, and he is a stranger, I probably have a lot more to lose than gain.

Ultimately, I think I’d be significantly more trustful once I establish my financial life, and once I get to know the person in question. Not before.

I realize this is appx a year late, but anybody remotely interested in the this post should read The Speed of Trust by Steven Covey. It does a nice job of conveying the importance of trust but also the elements of trust and how to create or destroy it.

This is a great post because it happens to help clarify a philosophical argument that my wife and I constantly get into (isn’t marital bliss grand?).

I am trusting, but like to think I also have a pretty good BS detector. I feel like within a few minutes of talking to someone, I could trust them with keys to my house to watch my dog, or even let them borrow my car, or some other such thing. My wife is way more pessimistic and judging of others however, always thinking that they will be out to get you or that they shouldn’t be trusted. I like living my way more obviously, as the last time I was “taken advantage” of was when I lent someone $20 that was never paid back, and as a result I gained a valuable lesson about who that person was.

In the end it’s probably good for us to combine our views together as we get both benefits of both philosophies but pretty funny that a thing as simple as trust allows for so many other things to flourish and prosper.

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